Bitcoin seems to be a very promising idea. I like the idea of basing
security on the assumption that the CPU power of honest participants
outweighs that of the attacker. It is a very modern notion that exploits
the power of the long tail. When Wikipedia started I never thought it
would work, but it has proven to be a great success for some of the
same reasons.

I also do think that there is potential value in a form of unforgeable
token whose production rate is predictable and can't be influenced
by corrupt parties. This would be more analogous to gold than to fiat
currencies. Nick Szabo wrote many years ago about what he called "bit
gold"[1] and this could be an implementation of that concept. There have
also been proposals for building light-weight anonymous payment schemes on
top of heavy-weight non-anonymous systems, so Bitcoin could be leveraged
to allow for anonymity even beyond the mechanisms discussed in the paper.
Unfortunately I am having trouble fully understanding the system. The
paper describes key concepts and some data structures, but does not
clearly specify the various rules and verifications that the participants
in the system would have to follow.
In particular I don't understand exactly what verifications P2P nodes
perform when they receive new blocks from other nodes, and how they
handle transactions that have been broadcast to them. For example, it
is mentioned that if a broadcast transaction does not reach all nodes,
it is OK, as it will get into the block chain before long. How does this
happen - what if the node that creates the "next" block (the first node
to find the hashcash collision) did not hear about the transaction,
and then a few more blocks get added also by nodes that did not hear
about that transaction? Do all the nodes that did hear it keep that
transaction around, hoping to incorporate it into a block once they get
lucky enough to be the one which finds the next collision?
Or for example, what if a node is keeping two or more chains around as
it waits to see which grows fastest, and a block comes in for chain A
which would include a double-spend of a coin that is in chain B? Is that
checked for or not? (This might happen if someone double-spent and two
different sets of nodes heard about the two different transactions with
the same coin.)
This kind of data management, and the rules for handling all the packets
that are flowing around is largely missing from the paper.
I also don't understand exactly how double-spending, or cancelling
transactions, is accomplished by a superior attacker who is able to muster
more computing power than all the honest participants. I see that he can
create new blocks and add them to create the longest chain, but how can
he erase or add old transactions in the chain? As the attacker sends out
his new blocks, aren't there consistency checks which honest nodes can
perform, to make sure that nothing got erased? More explanation of this
attack would be helpful, in order to judge the gains to an attacker from
this, versus simply using his computing power to mint new coins honestly.
As far as the spending transactions, what checks does the recipient of a
coin have to perform? Does she need to go back through the coin's entire
history of transfers, and make sure that every transaction on the list is
indeed linked into the "timestamp" block chain? Or can she just do the
latest one? Do the timestamp nodes check transactions, making sure that
the previous transaction on a coin is in the chain, thereby enforcing
the rule that all transactions in the chain represent valid coins?
Sorry about all the questions, but as I said this does seem to be a
very promising and original idea, and I am looking forward to seeing
how the concept is further developed. It would be helpful to see a more
process oriented description of the idea, with concrete details of the
data structures for the various objects (coins, blocks, transactions),
the data which is included in messages, and algorithmic descriptions
of the procedures for handling the various events which would occur in
this system. You mentioned that you are working on an implementation,
but I think a more formal, text description of the system would be a
helpful next step.
Hal Finney
[1] http://unenumerated.blogspot.com/2005/12/bit-gold.html
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